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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended: November 30, 1997
Commission File No. 0-22155
IN-HOUSE REHAB CORPORATION
- -----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-0987697
- ------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
325 West Main Street, Suite 1400B, Louisville, Kentucky 40202
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(Address of Principal Executive Offices, Including Zip Code)
(502) 568-8923
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
There were 13,347,072 shares of the Registrant's Common Stock outstanding as
of January 7, 1998.
Transitional Small Business Disclosure Format: Yes --- No -X-
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
IN-HOUSE REHAB CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
November 30 and May 31, 1997
November 30, May 31,
ASSETS (Unaudited) 1997
Current assets: ----------- -----------
Cash $ 401,299
Accounts receivable-trade, less allowance
for doubtful accounts of $239,000 and
$75,000 at November and May 31, 1997,
respectively 4,996,886 $ 2,736,132
Accounts receivable-trade - related party 3,855,674 4,548,493
Other current assets 70,653 15,057
Total current assets 9,324,512 7,299,682
Equipment, at cost 345,220 265,556
Less accumulated depreciation (76,010) (48,660)
269,210 216,896
Other assets 627,423 480,751
TOTAL ASSETS $10,221,145 $ 7,997,329
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 4,457,806 $ 3,542,102
Accounts payable 1,111,836 553,564
Other current liabilities 726,329 673,745
Total current liabilities 6,295,971 4,769,411
Minority Interest 16,011 -
Stockholders' equity:
Preferred stock, $10 par value; 10,000,000
shares authorized; no shares issued - -
Common stock, no par value;
20,000,000 shares authorized;
13,347,072 and 13,405,715 shares
issued and outstanding
at November 30, 1997 and May 31, 1997,
respectively 1,891,584 1,886,584
Subordinated convertible common stock,
no par value; 1,200,000 shares authorized;
no shares issued - -
Common stock subscriptions receivable - (58,577)
Retained earnings 2,017,579 1,399,911
3,909,163 3,227,918
Total Liabilities and Stockholders' Equity $10,221,145 $ 7,997,329
See accompanying notes to consolidated financial statements.
2
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IN-HOUSE REHAB CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the quarter and six months ended November 30, 1997 and 1996
(Unaudited)
Quarter Six Months
---------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ----------- ----------
Revenues:
Contract services $2,607,815 $1,506,475 $ 4,739,280 $2,926,426
Contract services
- related party 2,689,406 2,089,194 5,276,048 4,104,125
--------- --------- ----------- ----------
5,297,221 3,595,669 10,015,328 7,030,551
Operating costs:
Salaries, wages and
benefits 2,708,422 1,872,580 5,155,106 3,518,630
Contract therapists 733,468 653,416 1,517,164 1,290,610
Other expense 425,698 79,080 698,062 155,905
--------- --------- ----------- ----------
3,867,588 2,605,076 7,370,332 4,965,145
--------- --------- ----------- ----------
Gross profit 1,429,633 990,593 2,644,996 2,065,406
Selling, general and
administrative expenses 755,099 526,930 1,423,075 1,022,833
Income from operations 674,534 463,663 1,221,921 1,042,573
Interest expense 95,029 27,673 175,242 42,995
Income before minority
interest and income taxes 579,505 435,990 1,046,679 999,578
Minority interest 13,097 - 16,011 -
Provision for income taxes 228,000 179,300 413,000 423,881
Net income $ 338,408 $ 256,690 $ 617,668 $ 575,697
Net income per common share $ .03 $ .02 $ 0.05 $ 0.04
---------- ---------- ----------- ----------
Weighted average number of
common shares outstanding 13,366,906 13,742,113 13,539,487 13,681,744
See accompanying notes to consolidated financial statements.
3
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IN-HOUSE REHAB CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended November 30, 1997 and 1996
(Unaudited)
1997 1996
Cash flows from operating activities: ----------- -----------
Net income $ 617,668 $ 575,697
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 27,349 8,600
Amortization 34,278 92,799
Minority interest 16,011 -
Allowance for doubtful accounts 270,568 -
Change in assets and liabilities,
net of effects from acquisitions:
Accounts receivable (1,838,503) (1,577,184)
Other current assets (55,938) (38,021)
Other assets (35,450) (48,079)
Accounts payable 558,272 (63,941)
Other current liabilities 174,484 169,195
----------- ------------
Net cash used in operating
activities (231,261) (880,934)
----------- ------------
Cash flows from investing activities:
Purchase of equipment (79,663) (36,122)
Investment in Rehab Tools, Inc. (145,500) -
----------- ------------
Net cash used in investing
activities (225,163) (36,122)
----------- ------------
Cash flows from financing activities:
Proceeds from stock subscription
receivable 58,919 -
Issuance of common stock 5,000 185,999
Issuance of short-term borrowings 2,030,000 3,104,543
Repayments of short-term borrowings (1,114,296) (2,304,543)
Checks issued in excess of cash on deposit (121,900) (68,943)
----------- ------------
Net cash provided by financing
activities $ 857,723 $ 917,056
----------- ------------
Decrease in cash and equivalents 401,299 -
Beginning cash balance - -
----------- ------------
Ending cash balance $ 401,299 -
----------- ------------
Supplemental disclosures:
Income taxes $ 402,100 $ 391,021
Cash paid for interest $ 168,930 $ 44,486
4
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IN-HOUSE REHAB CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of the
Company as of November 30, 1997 and 1996 and the results of operations and
cash flows for the six month periods then ended.
This financial information should be read in conjunction with financial
statements and the notes thereto included in the Company's Form 10-KSB for the
fiscal year ended May 31, 1997.
Certain reclassifications of amounts in the consolidated financial statements
have been made to reflect comparability.
2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
QUARTERS ENDED NOVEMBER 30, 1997 AND 1996
The Company generated $5,297,000 in gross revenue for the quarter ended
November 30, 1997 compared with $3,596,000 for the same period in fiscal 1996.
The increase is due to both the addition of new contacts and acquisitions made
during the past year.
Both operating expenses and selling, general and administrative expenses
remained relatively stable as a percentage of revenues in the second quarter
of fiscal 1997 and 1996. Operating expenses as a percentage of revenue for
the quarter ended November 30, 1997 were 73.0%. This compares to 72.4% for
the same period in fiscal 1996.
Selling, general and administrative expenses for the quarter ended November
30, 1997 were 14.3% of revenue as compared to 14.7% for the same period in
fiscal 1996.
SIX MONTHS ENDED NOVEMBER 30, 1997 AND 1996
The Company generated $10,015,000 in gross revenue for the six months ended
November 30, 1997 compared with $7,031,000 for the six months ended November
30, 1996. The increase is due to both the addition of new service contracts
and acquisitions made during the past year.
Operating expenses as a percentage of revenue for the six months ended
November 30, 1997 were 73.6%. This compares with 70.6% for the six months
ended November 30, 1996. The increase is attributed to increases in the
number of personnel and wages and benefits costs.
Selling, general and administrative expenses for the six months ended November
30, 1997 were 14.2% of revenue as compared to 14.5% in the six months ended
November 30, 1996.
5
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LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 1997, the Company had working capital of $3,029,000 as
compared to working capital of $2,530,000 at May 31, 1997. The increase was
primarily due to an increase in trade receivables which was the result of an
increase in the number of contracts being serviced. As of November 30, 1997,
the Company had 93 contracts to provide rehabilitation, respiratory and/or
psyche/social services compared with 82 contracts at May 31, 1997.
Net cash used in operating activities was $226,000 for the six months ended
November 30, 1997. This compares with $881,000 for the same period in the
prior year. The decrease was primarily due to an increase in the days
outstanding in accounts payable.
Net cash used toward investing activities for the six month period ending
November 30, 1997 was $225,000. This compares with $36,000 for the same
period in the prior year. The increase was primarily due to a $145,500
investment made in Rehab Tools, Inc. ("RTI"). RTI was formed in July 1997,
when the Company entered into an agreement with an unrelated company to
acquire an airplane. RTI is a limited liability company that is 50% owned by
the Company and 50% owned by the unrelated company.
The Company had $853,000 provided by financing activities. This compares with
$917,000 for the same period in the prior year. The decrease was primarily
attributable to the issuance of common stock in the second quarter of fiscal
1996. There were no such issuances in the second quarter of fiscal 1997.
MAJOR CUSTOMER
Approximately $5,276,000 and $4,104,000 or 53% and 58% of all revenue for the
six months ended November 30, 1997 and 1996, respectively, and $4,997,000 and
$4,519,000 or 54% and 61% of the balance of accounts receivable at November 30
and May 31, 1997, respectively, related to one customer who is a stockholder
and related party of the Company, Retirement Care Associates, Inc. ("RCA").
The Company had Contracts for Therapy Program Services with 25 and 31
facilities either owned, operated or managed by RCA at November 30, 1997 and
1996, respectively.
RCA has announced that it has entered into a Merger Agreement (Merger) with
Sun Healthcare Group, Inc. (Sun) pursuant to which RCA would be merged into a
subsidiary of Sun. Sun currently has a subsidiary which provides
rehabilitation services similar to those services offered by the Company.
Effective January 1, 1998, the Company began working with Sun to transition
the RCA facilities that are serviced by IHR to Sun. The transition period is
scheduled to conclude in March 1998. Upon the completion of the Merger, Sun
has agreed to pay IHR the outstanding accounts receivable balance for each
transitioned facility in full.
RCA has issued its financial statements for the year ended June 30, 1997,
which includes an unqualified opinion from its auditors. In the footnotes to
the aforementioned financial statements, it states that RCA "has experienced a
significant net operating loss and at the same time a decline in liquidity,
resulting from the operating loss and a heightened level of investment in new
facilities." It also states that "closing of the Merger of the Company with
Sun...will provide access to additional sources of liquidity..." and outlines
RCA management's plan if the Sun Merger does not take place. In RCA's June
30, 1997
6
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10-K, it states that RCA and Sun "have filed with the Securities and Exchange
Commission, on a confidential basis, a preliminary proxy statement with
respect to the Merger...". Recent press releases by Sun have indicated that
the merger is anticipated to occur in the first quarter of calendar year 1998.
For further information, see RCA's Form 10-K and other SEC filings.
RCA continued to be a major customer of the Company through December 31, 1997.
A delay in regular payments of accounts receivable from RCA, for any reason,
could have a significantly unfavorable effect on the Company's cash flow from
operations. The Company has been increasing the number of contracts it has
with long-term care facilities operated by entities other than RCA and does
not anticipate that a loss of the RCA service contract revenues will have a
significantly unfavorable effect on the Company's operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities.
During the quarter ended November 30, 1997, the Company issued
2,857 shares of its Common Stock to Rehab & Therapy Center of Naples, Inc. as
part of the consideration paid for the acquisition of that company's assets on
September 30, 1997. The shares of stock were valued at $5,000.
With respect to this sale, the Company relied on Section 4(2) of
the Securities Act of 1933, as amended. The investor was given complete
information concerning the Company, and represented that it was purchasing the
shares for investment only and not for the purpose of resale or distribution.
The appropriate restrictive legend was placed on the certificate and stop
transfer instructions were issued to the transfer agent.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security-Holders. None.
Item 5. Other Events. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) Reports on Form 8-K. The Company filed Current Reports on
Form 8-K dated October 1, 1997 and October 10, 1997, both of which reported
information under Items 4 and 7.
7
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IN-HOUSE REHAB CORPORATION
Dated: January 14, 1998 By:/s/ David V. Hall
David V. Hall, President
By:/s/ Robert J. Babine
Robert J. Babine, Chief Financial
Officer and Treasurer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages 2 and 3 of the
Company's Form 10-QSB for the quarter ended November 30, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1997
<CASH> 401,299
<SECURITIES> 0
<RECEIVABLES> 8,852,560
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,324,512
<PP&E> 345,220
<DEPRECIATION> (76,010)
<TOTAL-ASSETS> 10,221,145
<CURRENT-LIABILITIES> 6,295,971
<BONDS> 0
0
0
<COMMON> 1,891,584
<OTHER-SE> 2,017,579
<TOTAL-LIABILITY-AND-EQUITY> 10,221,145
<SALES> 10,015,328
<TOTAL-REVENUES> 10,015,328
<CGS> 7,370,332
<TOTAL-COSTS> 7,370,332
<OTHER-EXPENSES> 1,423,075
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 175,242
<INCOME-PRETAX> 1,046,679
<INCOME-TAX> 413,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 617,668
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
